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MFSA rebranding: new wine in old wineskins

One welcomes the new financial crime compliance plan “Vision 2021” announced by the MFSA. This move did not come a moment too soon. It is essential that the rules of doing business within the global financial system are not only well written but also robustly enforced. Over the two decades that the sector was piloted by Professor Bannister as chairman at MFSA, he saw the financial sector grow from a modest size in 1994, to give birth to a reputable Centre of international business.

During Bannister’s watch commentators lament that MFSA’s autonomy from the strings at Castille was paper thin so it comes as no surprise that the International Monetary Fund and other international organisations are now insisting on its operational independence. The board of governors and CEO have always been nominated by the government of the day. The challenges that are facing the incumbent CEO (previously the chairman and CEO of the gaming authority) are significant. The demise of private banks such as Nemea, Sata and Pilatus last year were the fruits of past decisions and we are all too wise -now blaming that supervision was found wanting.

One welcomes the latest International Monetary Fund report which has been requested by the government and it gives a very piercing analysis of the factors which attributed to the recent shortcomings in the banking sector. But it compliments the superlative growth in the economy in particular the financial sector. This contributes 11% to the gross value added and also accounts for more than 10% of employment. MFSA as a super regulator employs 320 professionals. This is no small team to oversee approximately 2,300 licensed entities but MFSA envisages the scope for regulation is growing and wishes to recruit another 160 trained staff in two year’s time. In the current shortage of local professional this can only mean enlisting foreign experts. In the wake of Panama Papers revelations, MFSA now wishes to further tighten the screws by clamping down on money laundering and terrorist financing.

The new CEO wants to be seen as a Colossus fighting the infidels that penetrated the fragile fortress leaving in their wake a stigma of AML and terrorist financings decoys. He claims that Malta needs to grow responsibly and set standards which are in line or better than those of our peers in Europe. Stoically, he embraces technology and innovation, entering the FinTech space with optimism and preparedness. This is all very grand but it needs a higher subvention. It is a fact that the annual surplus (circa €10milllion) posted by the registry of companies has always helped fund operations at MFSA with the balance repatriated to government. So, why is MFSA contemplating securing the extra funding needed for a transformation to be sourced out of an increase in fees charged to practitioners. MFSA has long stopped financing promotion of the sector, rightly saying it cannot be seen compromising its impartiality.

This is commendable, but then the sector has to be actively promoted to compete with other jurisdictions that are constantly fine-tuning their laws and financial concessions to lure blue chip companies. Practitioners, therefore dig deep into their pockets to tour the globe, attend conferences, seminars and give presentations so that the island stands a better chance to compete. The logic to tax practitioners with higher fees may not a good idea. Practitioners cannot be blamed that the regulator is calling for “adequate resources” to preserve the effectiveness and operational independence of the domicile. This extra funding is warranted in a scenario that saw financial institutions constantly changing their business model and Malta’s attempt to harness blockchain and digital currencies.

Certainly, a generous tax revenue is collected from the sector and this goes towards the general welfare of the community so now that foreign observers such as IMF and EU have reported weaknesses in the armoury, it goes without saying that Castille needs to put money where its mouth is. Moreover, investment in the latest supervisory technology, business intelligence and knowledge management tools will become mission critical to the success of the MFSA. Last year, no money was spared to host mega Blockchain conferences promoting the island to qualify as FinTech hubs, FinTech strategies, and as a centre of excellence but at the same time Castille shies away from helping local firms who put their shoulder to the grinding wheel.

Therefore, it is opportune for PKF Malta in launching The Bit-Pod concept. This is a meeting place for informal discussions among practitioners, engineers and DLT enthusiasts to network and discuss latest topics on the vast subject of this technology. It is a non-profit organisation, as it helps connect entrepreneurs (mainly start-ups) to people, programming engineers, and other resources across the DLT and virtual currencies domain. Whether you are looking to connect, learn, share, or work, The Bit-Pod offers a selection of opportunities to network with other start-ups this may help you scale the slippery slopes of licensing and running an ICO or a virtual wallet. Back to regulation, the fly in the ointment is the need to renovate banking supervision. Again, referring to the Financial Sector Assessment Program on Malta’s financial stability, this found that the banking sector was in good health, but warned that high exposure to property-related loans and rising property prices posed a risk to the country’s financial system.

It found that our retail banks face challenges coming from a property and construction boom. It emphasises that “Core domestic banks’ high exposure to property-related loans, together with the rapid house price appreciation, poses a risk,”. It does not come as a surprise, that in the shadow of the disgraced Pilatus bank one expects the IMF to be vigilant and not ignore aspects of alleged money laundering transactions at that bank. Pilatus bank (last audited by KPMG) was the centre of political controversy ever since a series of leaked FIAU intelligence reports flagged evidence of money-laundering and serious compliance shortcomings two years ago.

In conclusion, on a positive aspect we note the comment by EU in its latest “Country Report” saying the rally in the economy is exemplary but as can be expected we cannot rest on our laurels. Castille must strive to ensure that its development is sustainable in the long term.